Correlation Between Needham Small and Short Duration

Can any of the company-specific risk be diversified away by investing in both Needham Small and Short Duration at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Needham Small and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Needham Small Cap and Short Duration Inflation, you can compare the effects of market volatilities on Needham Small and Short Duration and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Needham Small with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Needham Small and Short Duration.

Diversification Opportunities for Needham Small and Short Duration

0.64

Correlation Coefficient

Needham Small  Short Duration

Poor diversification

The 3 months correlation between Needham and Short is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Needham Small Cap and Short Duration Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Inflation and Needham Small is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Needham Small Cap are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Inflation has no effect on the direction of Needham Small i.e., Needham Small and Short Duration go up and down completely randomly.

Pair Corralation between Needham Small and Short Duration

Assuming the 90 days horizon Needham Small Cap is expected to generate 25.13 times more return on investment than Short Duration. However, Needham Small is 25.13 times more volatile than Short Duration Inflation. It trades about 0.17 of its potential returns per unit of risk. Short Duration Inflation is currently generating about -0.04 per unit of risk. If you would invest  1,983  in Needham Small Cap on July 31, 2025 and sell it today you would earn a total of  168.00  from holding Needham Small Cap or generate 8.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Needham Small Cap  vs.  Short Duration Inflation

Needham Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Needham Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Needham Small showed solid returns over the last few months and may actually be approaching a breakup point.

Short Duration Inflation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Inflation are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Needham Small and Short Duration

The main advantage of trading using opposite Needham Small and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Needham Small position performs unexpectedly, Short Duration can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Short Duration will offset losses from the drop in Short Duration's long position.

The idea behind Needham Small Cap and Short Duration Inflation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.